I attended a water summit on Monday presented by Sustainable Silicon Valley at the NASA Ames Research Center at historic Moffett Field. Although attended by 250 people, there was nary a venture capital investor in the crowd. If you go to a solar, smart grid or biofuel event there are typically packs of VCs (what's the word for a group of VCs? herd? school? flock?). Anyway, I did bump into Drew Clark of IBM Ventures, and I'm pretty sure he was the only corporate or venture investor in the hall. Drew has been looking at the water market for years on behalf of IBM and has often mentioned the similarities between information networks and water networks.

Drew recently returned from an enormous water conference in Israel, Watec, attended by thousands of people  Mr. Clark suggested we look to Israel for the an example of an innovative, emerging water ecosystem. According to Neil Fink of Worrell Water, Israel recycles 75 percent of its water compared to Los Angeles' 3 percent. Meanwhile, David Zetland, a political economist, water expert and the author of the Aguanomics blog, said that "over 50 percent of potable water in Southern California is used for landscaping." 

"The economics of water are simple," Zetland added, continuing to say that "abundance is over." He suggested that one way to change attitudes about water is to "get peoples' attention with higher prices – the price has to be so painful that it affects demand," he said, adding, "Remember that water is always a local issue. There are 54,000 water districts in the U.S., more than energy districts."

The U.S. obviously has a long way to go in managing its water resources. I will look into water issues and startups in upcoming posts.

Anyway back to venture capital. VC lore has it that you can't make money in water; it's too long a design cycle, too regulated and too fragmented a market. Flying in the face of this faulty reasoning is the fact that Energy Recovery had one of the few Greentech IPOs last year. Additionally, I did a little research and discovered that VCs are indeed investing in water across a variety of water sectors. Here's a quick list of water investments just in the first three quarters of this year. Note that while Israel has its share of water startups, U.S. VCs seem to be waking up to the water market as well. Watch out for a surge in water investments in 2010 and 2011.

The U.S. currently gets about 50 percent of its electricity from coal. And coal isn't going anywhere – it's cheap, abundant and politically entrenched. In fact, the Electric Power Research Institute (EPRI), essentially a research arm of the utility industry, predicts that our dependence on coal will grow in the coming decades.

Coal has enabled our current industrial world, but it's dirty. If we're going to need to clean it up – we need to capture and sequester the emitted CO2 (and other emitted poisons). So, just in time for Christmas and Copenhagen, Energy Secretary Stephen Chu announced three new projects with a price tag of $3.18 billion to ramp up the development of advanced coal technologies with carbon capture and storage at commercial-scale. Up to $979 million will come from the American Recovery and Reinvestment Act, leveraged with more than $2.2 billion in a private capital cost share as part of the third round of the Department’s Clean Coal Power Initiative (CCPI).    

The governor of coal state West Virginia, Joe Manchin was in on the announcement.

The projects announced today:

American Electric Power Company, (Columbus, Ohio)
Project Title: Mountaineer Carbon Dioxide Capture and Storage Demonstration
American Electric Power (AEP) will design, construct and operate a chilled ammonia process that is expected to effectively capture at least 90 percent of the CO2 (1.5 million metric tons per year) in a 235-megawatt flue gas stream at the existing 1,300 megawatt Appalachian Power Company Mountaineer Power Plant near New Haven, WV. The captured CO2 will be treated, compressed, and then transported by pipeline to proposed injection sites located near the capture facility. During the operation phase, AEP plans to permanently store the entire amount of captured CO2 in two separate saline formations located approximately 1.5 miles below the surface. The project team includes AEP, APCo, Schlumberger Carbon Services, Battelle Memorial Institute, CONSOL Energy, Alstom and an advisory team of geologic experts. (DOE share: $334 million; project duration: 10 years.)

Southern Company Services, (Birmingham, Ala.)
Project Title: Southern Company Carbon Capture and Sequestration Demonstration
Southern Company Services (SCS) will retrofit a CO2 capture plant on a 160-megawatt flue gas stream at an existing coal-fired power plant, Alabama Power’s Plant Barry, located north of Mobile, AL. The captured CO2 will be compressed and transported through a pipeline, and up to one million metric tons per year of CO2 will be sequestered in deep saline formations. Southern Company Services will also explore and utilize potential opportunities for beneficial use of the CO2 for enhanced oil recovery. In addition to SCS, the project team includes Mitsubishi Heavy Industries America, Schlumberger Carbon Services, Advanced Resources International, the Geological Survey of Alabama, EPRI, Stanford University, the University of Alabama, AJW Group and the University of Alabama at Birmingham. (DOE share: $295 million; project duration: 11 years.)

Summit Texas Clean Energy, LLC (Bainbridge Island, Wash.)
Project Title: Texas Clean Energy Project (TCEP)
Summit Texas Clean Energy will integrate Siemens gasification and power generating technology with carbon capture technologies to effectively capture 90 percent of the carbon dioxide (2.7 million metric tons per year) at a 400-megawatt plant to be built near Midland-Odessa, Texas. The captured CO2 will be treated, compressed and then transported by CO2 pipeline to oilfields in the Permian Basin of West Texas, for use in enhanced oil recovery (EOR) operations. The Bureau of Economic Geology at the University of Texas will design and assure compliance with a state-of-the-art CO2 sequestration monitoring, verification and accounting program. (DOE share: $350 million; project duration: 8 years.)

Senator Robert C. Byrd, the still ambulatory senator from West Virginia (since 1959), was quoted as saying: "Clean coal can be a green, competitive 21st century fuel."

There are a few CCS pilot projects in the world but none at full commercial scale and none at market price.

Gary Kremen is the Chairman and founder of Clean Power Finance (CPF), an interesting solar company. CPF provides a standardized software-as-service (SaaS) tool that lets solar panel installers vastly speed up the sales proposal, rebate processing, system design and lead generation.

Based in occasionally sunny San Francisco, the company aims to enable mass-market adoption of solar with an end-to-end solution that integrates software and financing into the sales process. 

Solar installers work with trucks, ladders, tool belts and roofs. "They hate paperwork," according to Kremen.  So, CPF runs that part of the business for the installer. "We help the installer close the customer," asserts the founder.

CPF supplies the integrated software but soon expects to provide a means of financing solar roofs for home and business owners. "Why can't buying solar be like buying a car with POS [point of sale] financing?," said Kremen. Solar is in roughly the same price range. You should get credit at the same time you make the purchase."
 
As the price of the solar equipment drops, the "soft costs" of the sale and installation become more significant, said Kremen. "We are the CRM and MRP and system design. We produce the proposals and fill out the forms. Additionally, we have the world's best database of utility rates. PG&E has 200 rates. We help these installers get away from the math and the paperwork. Filling out the forms can take five hours."

The company also does shading analysis, and that saves the installer at least one visit to the site. 

As testament to the value of CPF's Software as a Service product, the company has won Conergy, Real Goods, RoofRay and Suntech as customers.  "We probably power 20 percent of the solar installers," said Kremen.

CPF's goals are aligned with the folks at SolarTech where they work with their Finance and Workforce Committees focusing on sales training, front end standards and best practices.

I did promise sex in the headline so here it is...

Gary Kremen has had a unique and storied history prior to his solar venture. As a founder of Match.com, he's responsible, in his words, for "spreading the love." Others would assert that Match.com is responsible for more bad dates than The Olive Garden.  In any case, Match.Com was eventually sold to Ticketmaster / Citysearch for $50 million.

And there's the genuinely riveting sex.com saga which you can read about here.

Camille Ricketts of Venture Beat moderated a panel on VC investment in smart grid at the Greenbeat event this morning.

Here are a few notable observations and quotes from the investors on the panel.

Peter Wagner of Accel Partners:

• He's very interested in the issues in the charging and control of EVs.
• He encourages entrepreneurs to find customers who are not the utility – go direct to a consumer.
• Wagner is looking for the company that looks like Opower meets Playfish – bringing social networking plus energy monitoring direct to the consumer
• "Wouldn't be surprised to see Cisco acquire Silver Spring Networks – although Cisco is probably tired of being extorted in the M&A market." (See Tandberg.)
• The negative with government smart grid funding is the risk of "false positives" – chasing pools of dollars that seem to exist but are really a mirage.

Don Wood of DFJ on greentech exit action in China:

• Wind turbine blade manufacturer "Tang Energy will go public" and I think you will see an EV company go public in 2010."

Introduced by Venture Beat's Matt Marshall as "The best known investor in Web 1.0, involved in the founding of Amazon, Netscape, and Google," John Doerr and his firm, Kleiner Perkins, have raised a billion dollars to be channeled into greentech. 

"Greentech could be the largest economic opportunity of the 21st century," said Doerr.

Speaking at Venture Beat's inaugural Smart Grid event in San Mateo Calif., he offered his usual thoughts on greentech governent spending, the daughter Mary story ("Your generation created this problem you better fix it.") but he did add some interesting quotes:

• "The internet is a $1 trillion economy. Compare that with the energy business, a $6 trillion dollar economy."
• "The super grid is going to be the last great network we buid in our lifetimes."
• "Google took about $25 million to get to IPO," he said. Doerr compared that to Bloom Energy which has taken $350 million. "There is so much capital required to grow a great green company."  Bloom, which "has substantial revenues and orders required ten times as much capital – and we are seven years into Bloom. I wager nine years to a successful public offering."
• "Advice to investors: Don't count on additional government incentives."
• "In green in particular we have woefully underinvested."
• "My lesson about policy is not to argue about your self interest.  Make an argument that's bigger and about jobs or competitiveness – and you're going to change a few minds."
• "Energy is the the sum of all lobbyists."
• "If we had foreseen the crash, we might not have invested in green."
• He had three suggestions for carbon: "Put a price on carbon, put a price on carbon, put a price on carbon. It will be a signal to have private investors move their capital to low carbon energy."

Kleiner Perkins' cleantech investments include Bloom Energy (Fuel Cells), MiaSolé (CIGS PV), Solexel (3D Silicon Cell PV), Alta Devices (Stealth PV), Ausra (Solar Thermal), Altarock (Geothermal), Fisker Automotive (EVs) and several others.  Their smart grid investments include Silver Spring Networks and Hara Software.

Here's an interesting thing about VC investment in smart grid: Investors talk about it a lot but the numbers are low. It's a bit surprising to see the small proportion of smart grid deals relative to VC in greentech as a whole:



So are VCs talking and not diving in? Are they looking to see the outcome of Silver Spring Networks' utility roll-out? Are we only in early days? 

Or will these initial forays into Advanced Meter Infrastructure and Home Energy Networks give way to a bigger and steadier wave of other smart grid technologies like Vehicle to Grid, EV charging stations, data management and analytics, network optimization tools, and independent energy storage operators?

The next few quarters will tell. Smart people in Greentech Media's smart grid practice see a new smart grid innovation and investment wave about to break.

Always On previewed its December Venture Summit with a breakfast at the offices of Wilson Sonsini Goodrich & Rosati (WSGR) this morning where it examined trends in finance and the VC outlook for 2010.

Tony Perkins runs Always On, christened Silicon Valley the "Athens of the Information Age." He asked the panel "if the economic recovery is real?"

Doug Merritt of SAP is in charge of sales to SAP's largest clients  (SAP will have revenues of $14 billion this year) and gave a 30,000-foot view.  "People were so panicked at the end of 2008, they didn't even know how to act," he said. But now "the largest organizations I deal with are actively investing." On the Greentech front, he detailed how Cisco's travel budget has dropped from $750 million to about $250 million, not because the company has reduced travel so much but because it has massivly increased meetings via telepresence.

Mark Reinstra of WSGR spoke of the IPO climate: "There have been ten VC-backed IPOs in 2009, but from an informal survey within the firm, we've seen many more companies preparing for IPOs just within WSGR."  The litmus test remains that a company needs $30M to $60M annual revenues to IPO." 

Ted Smith of Union Square Advisors said: "There's a lot of stuff coming in the top of the funnel but as far as actual M&A exits – it's a very high bar."

Jim Anderson of Silicon Valley Bank (SVB) works in the analytics group, and specailizes in valuations. "There is no question that valuations have dropped precipitously," he said, adding that there is a disconnect between the state of the economy and the multiples and valuations in the stock market.  He likened the state of the economy to a near-comatose patient on pain killers.  Unemployment goes to 10.2 per cent and the Dow jumps. "The U.S. economy is driven by consumer savings but consumers are hunkered down," he said. Anderson certainly sees significant growth from 2009 to 2010.

"But the little corner of the world that we operate in – the world of VC – innovators will continue to innovate. Adverse environment can actuallly produce the best start-ups," he said.

Sandy Miller, a veteran VC at Institutional Venture Partners (IVP) is "much more optimistic" than Anderson of SVB. He believes that "the financial markets almost invariably precede the recovery by two to three quarters. The financial markets have already recovered. There's an appetite for IPOs from institutional buyers, adding "The actual paramenters to go public have been virtually the same for the last thirty years." He also noted that "2010 will be a reasonably active year in the IPO market," and that "when the IPO market rises the M&A market responds as well." 

"Greentech company valuations are twice what we would expect for other sectors," he said. (Which is why he's staying away from those investments.)

"It's a great time to be an investor," Miller concluded.

SAN FRANCISCO -- Smart Grid is the energy theme of the moment – hundreds of millions of government funding, billion dollar smart meter deployments, and hundreds of millions in venture capital have drawn the attention of entrepreneurs, utilities, and corporate behemoths like Cisco, Intel, Oracle, ABB and Silver Spring.

And almost 500 of these smart grid cognoscenti converged at the PG&E Auditorium in San Francisco to assess the state of this nascent many-faceted industry at Greentech Media's The Networked Grid event.

Rick Thompson, GTM's fearless smart grid leader, kicked off the event with a review of some recent industry polling. Here a few tidbits:

• Utilities view the benefits of the smart grid as a reduction in peak demand, energy efficiency, and an increased visibility and control.
• As for energy storage, utilities are planning to deploy pilot energy storage systems but there remains lots of uncertainty in storage and many smart grid areas.
• The major concerns for the utilities are back-end management and data management (clearly an opportunity for startups) as well as regulatory issues.

David J. Leeds, GTM's smart grid analyst, introduced the Real World Deployments and Policies: 2010 to 2020 panel. What follows are some of the more interesting quotes from the speakers.

Thomas Bialek, Chief Engineer, Smart Grid SDG&E:

• "Smart grid is not a revolution, it's evolution."
• "In California, we've been very progressive in our utility networks and smart grid is just a furtherance of those activities."
• "Will the utilities be the gas station of the future?"

Erfan Ibrahim, EPRI:

• "The rumor is that the grid is antiquated – that rumor is coming out of Silicon Valley and it's not true."
• Our grid has already been made intelligent "the challenge is we don't have a way of internetworking these nodes, we need a cost effective way of interconnecting already intelligent sensors."
• On cybersecurity: "We need more than just a big wall  we need successive challenges to the hacker. Think of grid cybersecurity in a systemic way. It's sophisticated and needs to be done with diligence."
• "Pool pumps, water heaters, AC and thermostats are the items that utilities would like to control in order to tackle peak demand."
• Amongst the many critical issues with the smart grid are: "Who owns the data and who has the right to use the data collected by the smart grid?"

Andrew Campbell, Senior Energy Advisor, CPUC:

• The biggest challenge in the smart grid is considered the regulatory aspect, at least in the eyes of the utilities.
• PG&E, SDG&E, and SCE will deploy 12 million advanced electric meters and five million gas meters by the end of 2012. (That's almost 15,000 meters a day!)
• There is no specific smart grid related regulatory framework for these deployments.

Kevin Dasso, Senior Director, Smart Grid Strategy at PG&E:

• "What does PG&E think of when we think smart grid? The simple explanation: An overlay of intelligence and automation over the existing grid – wires and substations – to offer new services and features. It can enable new services and features – uptake of renewables, bill management, and reliability."
• "There is a lot of excitement but excitement can be fleeting – we need to strike while the iron is hot. There will be some kind of half-life – so strike now."
• "Build customer awareness and expectations early. Plugging in a smart meter doesn't automatically reduce a customer's bill."
• Standards and roadmaps can make or break the success of the smart grid. Smart grid is a journey and we really need a roadmap to guide that journey."
• "There will be features ten years from now that we have no idea that could be done."